Canada: The Rise Of The Trade Agreements: New Obligations, New Opportunities

One of the conditions by the members of the European Union for
launching into free trade negotiations with Canada in 2009 was that
local government procurement — the so-called subnational
level of government — be included within the scope of the
negotiations. This was a significant departure from existing
international free trade arrangements, including the North American
Free Trade Agreement (NAFTA) and the World Trade Organization (WTO)
Agreement on Government Procurement, which apply only to the
federal, provincial and territorial levels of governments.

Recently, two major trade agreements have come to apply to
municipalities and to members of the Broader Public Sector (BPS) in
Canada, which include, among others, hospitals, school boards,
colleges and universities. The Canadian Free Trade Agreement (CFTA)
came into force on July 1, 2017, and the Canada-European Union
Comprehensive Economic and Trade Agreement (CETA) became effective
on September 21, 2017.

While trade agreements generally aim to promote the exchange of
goods and services between their signatories, the procurement rules
contribute to this overall objective by setting up rules of
engagement based on fairness (where all parties are treated the
same), transparency (where the rules are knowable to any interested
party), and reciprocal non-discrimination (where no party is put at
a competitive disadvantage because of its home jurisdiction). Such
rules open-up markets by stimulating the sale and purchase of
goods, services and construction across borders, driving down price
and increasing value for public sector buyers.

It is undeniable that the CFTA and CETA impose new obligations
on public organizations at the subnational level, but it is worth
noting that the agreements also create new opportunities to
optimize value for public procuring organizations.

The Canadian Free Trade Agreement

The CFTA is a domestic trade agreement between the federal,
provincial and territorial governments. It replaces the Agreement
on Internal Trade (AIT). Chapter 5 of the CFTA (Government
Procurement) shares much in common with its predecessor AIT, but
there are some important differences. The CFTA contains
clarifications and explicit rules and procedures that differ from
the AIT, including those relating to tender notices, local
preference, electronic posting, supplier experience and
prequalification, technical specifications, new information and
modifications, negotiations, public-private partnerships, and
debriefs.

The CFTA also offers some new opportunities for public
organizations. Article 512, on negotiation, is an example. Article
512 invites a customized procurement process that leverages
negotiations with bidders. Because negotiations are the best, and
arguably the only, way to truly optimize value (financial and
otherwise), Article 512 creates a range of opportunities having the
potential to drive down costs (by 15-20% or more) and increase the
value of the good/services or solution being procured. Drafting a
solid bid call document is always a good thing, but innovation and
value lie in negotiations.

A note on the AIT/CFTA: Ontario's Broader Public Sector
Procurement Directive, which came into force in 2011, is based on
the AIT. While the Directive was not intended to amend the
requirements of the procurement chapter of the AIT, there are now
ambiguities between the requirements of the Directive and Chapter 5
of the CFTA. Until the Government of Ontario makes the required
adjustments to the Directive to reflect the requirements of the
CFTA, references to the AIT in the Directive should be read as
references to the CFTA.

The Canada-European Union Comprehensive Economic and Trade
Agreement

CETA is an international trade agreement between Canada and the
28 member states of the European Union. CETA sets new standards in
the trade of goods, services (and construction), non-tariff
barriers, investment, government procurement, and other sectors,
including labour and the environment. With respect to covered
procurements, CETA requires procuring entities to comply with
certain specific rules and procedures relating to, for example,
notices of intended procurement, selective tendering and submission
dates.

Currently, 99% of EU tariff lines on Canadian goods are
estimated to be duty-free, compared to approximately 25% before
CETA.

CETA applies to higher value procurements when compared to the
thresholds set out in the CFTA. The CETA threshold for the
procurement of goods and services at the sub-federal government
level has been set at 200,000 SDR (SDR is an international reserve
asset created by the International Monetary Fund), or $340,000 CAD
and at the federal government level at 130,000 SDR or $221,000 CAD.
The threshold for construction services at all levels of government
is set at 5 million SDR or $8.5 million CAD. The thresholds will be
set at regular intervals by Global Affairs Canada.

CETA represents an outstanding new opportunity for Canadian
companies to explore bidding on EU procurement contracts at the
federal and sub-federal levels of public organizations in 28 EU
countries, ranging from municipalities, hospitals, universities, to
many others.

Bid Dispute Resolution

With respect to procurements outside the federal environment,
both CETA and the CFTA require the creation, by government parties,
of a well-developed procurement complaint system. Both trade
agreements provide for the establishment of a timely, effective,
transparent and non-discriminatory administrative or judicial
review procedure through which a disappointed bidder may challenge
a breach of the agreements' procurement chapter. Both also
obligate each government party to put in place procedures that
provide for rapid interim measures to preserve the disappointed
bidder's opportunity to participate in the procurement and for
corrective action or compensation for the loss or damages suffered.
Given how a single significant damage award could have the effect
of financially devastating a procuring entity, particularly smaller
ones, both CETA and the CFTA contemplate limits on the amount of
damages that could be awarded. These will focus on the costs of
participating in the tender process and the costs relating to the
challenge.

Ending Comments

CETA and the CFTA provide public sector procuring organizations
an opportunity to review their procurement policies and procedures,
procurement documents and practices to ensure they comply with the
new trade agreements. They should also ensure they take full
advantage of the new opportunities to achieve greater value from
their procurements. Both require a detailed review of CETA and the
CFTA to carefully assess the impact of the new trade agreements on
both their procurement activities and procurement governance.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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The World Trade Organization (WTO) dispute settlement system has been a remarkably good tool for resolving disputes, but it is not perfect and like any mechanism that has been in use for some time, it needs updating.

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